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Virtual cards break the check habit for B-to-B payments

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In the wake of the many changes this year has brought, companies are moving toward making more of their supplier payments electronically.

It’s a welcome thing. Check payments have dwindled in consumer life, but across U.S. industries, nearly half of all supplier payments are still made by check. As accounts payable departments went into work from home mode, it became difficult to cut checks. They rushed to set suppliers up for ACH payments, skipping over what might be a better opportunity: paying them by virtual card.

Not every supplier accepts virtual cards, however. Before you set your suppliers up for ACH, you should at least ask about cards—there are compelling benefits for both buyers and suppliers with that option. For suppliers, getting paid by card is the fastest way to get their money in the bank. On the buyer’s side, virtual cards are the most secure payment method, and they can also generate rebates.

To get the promised rebates, you need to find the right card program for your business and have a solid plan for continually enabling suppliers. For most companies, it makes sense to consider virtual cards in the broader context of automating the entire payment process.

To be clear, I’m not talking about p-cards. P-cards are a physical card that AP uses to pay suppliers over the phone. Virtual cards are 16-digit “card” numbers issued to a named supplier for a specified amount. These “v-cards” can’t be processed by anyone other than the supplier, or for anything larger than the authorized amount. And, if somehow a fraudulent transaction should occur, virtual card issuers offer the same protections as they do with plastic cards. When it comes to check and ACH payments, money that falls into fraudulent hands can be challenging to get back. Card processes are more traceable and are, therefore, easier to reverse.

It’s possible for your team to own their own card payment processes instead of handing the reins over to a payment automation partner. But the work required often dissuades companies from doing so.

One of the main reasons checks have persisted as the top payment type in the business world is the minimal setup required. This makes checks an attractive payment method on paper, especially for companies who do business with thousands of suppliers. But the actual process is more labor-intensive because each check must be approved, printed, signed, and mailed—a process that can take days for some companies.

On the reverse side, card payments require an enablement component. Someone must reach out to each supplier to confirm their payment preference. The upfront work often prevents decision-makers from pulling the trigger on implementing such a system. Ironically, many companies turn to ACH or wire as an alternate solution, but these are even costlier and more time-consuming. For these payment types, companies must collect supplier bank account information. Then they must validate and store them securely and maintain tight, protective controls on them.

For smaller companies that are more focused on generating an additional revenue stream, a standalone virtual card program can be a decent option. The caveat is that without a strong enablement effort, any projected rebate may have to be invested back into your process to maintain it.

An independent program works well when companies are highly integrated between their ERP system and their bank. In these scenarios, the company usually has most of their suppliers set up to receive ACH payments, simplifying the reconciliation process. However, adding more payment automation over the top of existing automation would be redundant, closing the door on additional revenue that might be generated from a card program down the road.

Larger companies should look at comprehensive payment automation solutions with virtual cards embedded into them, even if you don’t plan to use them right away.

Automated solutions wrap all payment types into a single workflow, making it easy to offer several options to suppliers without adding to AP’s daily workload. Because suppliers are continuously enabled for electronic payments via a supplier network, most companies can immediately pay a significant percentage of their suppliers electronically with no effort. Paying by check also becomes as simple as submitting a pay file and approving it. This simplified process cuts out a significant portion of AP’s manual tasks, leaving them more time to focus on higher-level initiatives.

By automating the whole payment process, including enablement, reconciliation, and error resolution, AP teams usually see cost reductions of up to 70%. When you add revenue from card payments into the equation, AP can become a profit center.

Card payments still only account for about 5% of B2B payments. There’s a significant opportunity that companies have been missing out on, either because they haven’t researched virtual cards, don’t want to do the supplier outreach, or haven’t found a partner that can help them make it work. Due to processing fees, not every supplier will accept card payments. Still, a surprising number—around 20% of suppliers, in my experience—will say yes if they’re asked.

Now that cash flow is king, companies are shifting to accommodate more ACH enablement outreach. While you’re reaching out to your suppliers, it may be worth your time simply asking if they would accept card payments. Wrapping these initiatives into a payment automation solution may enable your AP department to run lean in the cloud indefinitely.

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B-to-B payments Digital payments Cards Payment processing
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